House prices won't rise significantly but the big falls will cease after RBA interest rate cut: Residex boss John Edwards

By Jonathan Chancellor
Tuesday, 01 May 2012

Residex chief John Edwards says the interest rate reduction is going to provide much-needed consumer confidence boost.

But Edwards does not expect the rate adjustment to cause "significant house price rises" in most markets due to unaffordability issues that will still remain.

“Without some form of stimulus, we would have been likely to continue seeing housing values decrease across much of Australia.

“Today’s RBA decision should stop the heavy adjustment process which would have otherwise been inevitable in the Melbourne market, and it will help push all markets which were passed the bottom of the correction phase”.

Edwards suggests depending on the content of the upcoming federal budget and its assessed impact, a further 25-basis-point adjustment could come in June.

Before the rate cut, Edwards suggested he did not expect "any dramatic upward pressure on housing values once the rate cut takes place."

"In many capital cities, even with a 0.5% cut in home loan rates (provided the banks pass it on in full), affordability will still be too difficult.

"Also, there is significant over supply in places like Melbourne and Adelaide, and in cities like Sydney there is a stock shortage which is reducing by the week.

"An interest rate reduction will improve affordability but the median house for the median income family in Sydney will still be out of reach, requiring about 60% of after tax income to make repayments.

"Consumers will still find home purchase difficult.

"Cities that have moved out of the correction phase or are moving to a positive outcome, and where the stock overhang is lower, the position will be better and encouraging.

"It will be units and the lower cost properties in the house and land market that will benefit most.

"Construction is slowing, as are approvals, so stock positions will become more difficult and we will see supply issues developing over the next two years," Mr Edwards said.